Sunday, May 23, 2010

Dow 10,000 & Mass Panic?

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There's a terrible storm brewing IMHO.

The DJIA is threatening to decisively break below the psychologically important 10,000 mark:

In my thesis, I highlight three key points relevant to the current pattern unfolding in mass psychology.

First off, as overviewed in recent related blogs, according to the Elliott Wave Principle, we have apparently entered Primary Wave 3 down in the Grand Supercycle bear market that, according to Robert Prechter, should lead to around a 90% drop in stock prices in the coming months:

More specifically, we are currently in the midst of the most dynamic portion of rising fear and anxiety in Intermediate wave 1 down of Primary wave 3 down:

If this wave count is accurate, then the sharp decline in the stock market that started after mass mood peaked a few weeks ago should continue in the days and weeks ahead and likely become significantly more severe.

A second key point is that a full-fledged panic this time of year is consistent with the seasonality of mass mood swings. May is similar to October in that it is a month of sharp seasonal transition during which extremes of collective anxiety and panic can occur:

As noted earlier, the suicide rate peaks in May.

Finally, and possibly most importantly, the DJIA is potentially on the verge of decisively breaking below the key 10,000 benchmark. On past occasions when the stock market has failed at critical psychological barriers significant historical shocks have occurred.

For instance, on September 6th of 2001, the DJIA fell decisively below the 10,000 mark, THEN the terrorist attacks of September 11th occurred driving the market down sharply:

In the summer of 1990, the DJIA reversed from 3000 and then Iraq invaded Kuwait, thereby triggering a Persian Gulf crisis and major oil-shock that caused the world economy to slip into a recession and stock prices to plunge by 25 percent. Notably, the DJIA topped by closing two days in a row at exactly 2999.75 on July 16th and 17th of that year (did not close above 3000 for the first time until the following year):

In October of 1973, when the DJIA rose to just below Dow 1000, the Arabs launched a surprise attack against Israel which, in turn, led to a major East/West confrontation and an Arab oil embargo against the West. Consequently, the world economy entered a severe contraction and stock prices plunged in the largest market correction up to that time since the Great Depression:

Will a breakdown in mass mood associated with the DJIA dropping decisively below 10,000 involve a new historical shock?

Given this possibility, one should keep a close eye on Korea and the Middle East where there is emerging evidence that war could erupt anytime. If this proves to be the case, then one should consider that the prophetic Apocalypse is now unfolding and take life-preserving measures accordingly as best possible. (Note that my Apocalyptic vision in 1991 started with seeing a special report of a chemical SCUD missile attack on Israel and this particular event should be deemed a telltale sign of an imminent nuclear attack on America. A Korean conflict in and of itself, although deeply disturbing, does not strike me as an immediate threat for those living on U.S. soil.)

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